Commercial property finance works differently from residential mortgages. Here's everything Australian business owners and investors need to know about financing commercial property in 2025.
Commercial vs Residential Property Finance
Key Differences:
| Factor | Residential | Commercial |
|---|---|---|
| LVR | Up to 95% | Typically 50-70% |
| Rate | 6-7% p.a. | 7-12% p.a. |
| Term | 25-30 years | 5-25 years |
| Assessment | Income focus | Property/business focus |
| Approval Time | 4-8 weeks | 1-4 weeks (private lenders) |
Types of Commercial Property Finance
1. Commercial Property Purchase Loans
For buying office, retail, warehouse, or industrial property.
- LVR: 60-70%
- Rates: 7-10% p.a.
- Term: 15-25 years
2. Commercial Refinance
Switching existing commercial loans or releasing equity.
- LVR: Up to 70%
- Rates: 7-9% p.a.
- Purpose: Better rates, equity release, debt consolidation
3. Commercial Construction Loans
For building new commercial premises.
- LVR: 60-65%
- Rates: 8-11% p.a.
- Progressive drawdowns: Paid as construction advances
4. Owner-Occupied vs Investment
Owner-Occupied: Your business operates from the property
- Lower rates (7-9% p.a.)
- Better terms
Investment: Property leased to tenants
- Higher rates (8-11% p.a.)
- Rental income assessed
What Lenders Assess
Property Factors
- Location: Prime locations get better rates
- Property Type: Office/retail easier than specialty
- Condition: Modern, well-maintained preferred
- Tenancy: Existing leases strengthen application
- Valuation: Professional valuation required
Borrower Factors
- Business Strength: Trading history, profitability
- Deposit/Equity: 30-40% typically required
- Experience: Property/business experience helps
- Credit: Important but not as critical as residential
- Servicing: Can you afford repayments?
Rental Income Assessment
Lenders typically assess at:
- 80% of rental income (to account for vacancies)
- Existing lease agreements reviewed
- Market rent assessments for vacant properties
Private Lenders vs Banks for Commercial
Banks Offer:
- Lower rates (7-9% p.a.)
- Longer terms (20-25 years)
- Stricter criteria
- Slower approval (4-8 weeks)
Private Lenders Offer:
- Faster approval (1-2 weeks)
- More flexible criteria
- Higher LVRs sometimes
- Higher rates (9-15% p.a.)
- Shorter terms (1-5 years typical)
Choose Private Lenders When:
- You need fast approval
- Banks have declined you
- Property is unique/specialty
- You're self-employed with complex income
- You want to maximize LVR
- You need short-term funding before refinancing
Commercial Property Loan Rates 2025
Bank Rates:
- Owner-occupied: 7.0-8.5% p.a.
- Investment: 7.5-9.5% p.a.
Private Lender Rates:
- Standard: 9-12% p.a.
- Higher risk: 12-18% p.a.
- Short-term/bridging: 1-3% per month
Real Example: Sydney Warehouse Purchase
Michael, logistics business owner, buying $2M warehouse
Property Details:
- Purchase price: $2,000,000
- Existing tenant: 3-year lease, $180,000 p.a. rent
- Location: Western Sydney industrial area
Bank Offer:
- LVR: 60% ($1.2M loan)
- Deposit required: $800,000
- Rate: 8.2% p.a.
- Approval time: 6 weeks
- Deal risk: Vendor gave 4-week settlement
Private Lender Solution:
- LVR: 70% ($1.4M loan)
- Deposit required: $600,000
- Rate: 10.5% p.a.
- Approval time: 10 days
- Settled on time
Michael's plan: Use private lender for 12 months, then refinance to bank once settled.
Cost of private lending: Extra $27,600 in interest over 12 months Cost of losing deal: Losing $200,000 deposit + opportunity cost
Decision: Worth it for deal certainty
Common Commercial Property Types
Easiest to Finance:
- Office buildings (standard fit-out)
- Retail shops in good locations
- Industrial/warehouse (good areas)
- Medical suites
Harder to Finance:
- Pubs/hotels
- Service stations
- Car washes
- Unique/specialty properties
- Properties needing major work
The Application Process
Step 1: Pre-approval (Optional but recommended)
- Submit basic details
- Get indication of borrowing capacity
- Shop for properties with confidence
Step 2: Formal Application
- Property contract
- Business financials (2 years)
- Personal financials
- Deposit evidence
Step 3: Valuation
- Lender arranges professional valuation
- Typically costs $1,500-$5,000
- Takes 1-2 weeks
Step 4: Approval
- Full assessment completed
- Formal approval issued
- Conditions outlined
Step 5: Settlement
- Legal documentation
- Final checks
- Funds released
Timeline:
- Banks: 4-8 weeks total
- Private lenders: 1-3 weeks total
Key Documents Required
Property Documents:
- Contract of sale
- Section 32 (VIC) or equivalent
- Building/pest inspection reports
- Current lease agreements
- Rental statements
Business Documents:
- 2 years business financials
- Business tax returns
- BAS statements
- Business plan (sometimes)
Personal Documents:
- Personal tax returns (2 years)
- Bank statements (3-6 months)
- Asset/liability statement
- Credit check authorization
Strategies to Improve Approval
- Increase Deposit: Every 5% above minimum improves terms
- Strong Tenant: Long lease to quality tenant is gold
- Improve Business Financials: Show steady/growing profit
- Clear Exit Strategy: If using private lender, show refinance plan
- Professional Presentation: Quality property photos, reports
- Use Broker/Introducer: We help match you with right lender
Tax Considerations
Deductible Costs:
- Interest on commercial loans (usually 100%)
- Building depreciation
- Loan establishment fees
- Ongoing property costs
Speak to accountant about:
- GST implications
- Land tax
- Capital gains tax planning
- Structure (individual, trust, company)
Red Flags That Reduce Approval Chances
- Poor property condition
- Declining area
- Very short remaining lease
- Significant rental arrears
- Unusual/limited-market property
- Business showing losses
- Poor personal credit
- Insufficient deposit
FAQs
How much deposit do I need? Typically 30-40% deposit (60-70% LVR maximum). Private lenders sometimes go to 75% LVR for strong properties.
Can I buy commercial property through my super? Yes, via Self-Managed Super Fund (SMSF). Specific rules apply - seek specialist SMSF advice.
Do I need tenants before applying? Not required, but existing quality tenants significantly strengthen applications and improve rates.
Your Next Steps
- Determine Your Budget: Calculate how much you can afford
- Property Search: Find suitable commercial properties
- Pre-Approval: Get borrowing capacity confirmed
- Connect with commercial lenders: Get multiple options
Whether you choose banks or private lenders, Introducr can connect you with options suited to your needs.
Ready to finance your commercial property? Connect with lenders now or explore commercial loan options.